IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2502.14041.html
   My bibliography  Save this paper

Fiscal Policy and Household Savings in Central Europe (Poland, Croatia, and Slovak Republic) -- A Markov Switching VAR with Covid Shock

Author

Listed:
  • Tuhin G M Al Mamun
  • Ehsanullah
  • Md Sharif Hassan
  • Mohd Faizal Yusof
  • Md Aminul Islam
  • Naharin Binte Rab

Abstract

This study investigates the effectiveness of fiscal policies on household consumption, disposable income, and the propensity to consume during the COVID-19 pandemic across Croatia, Slovakia, and Poland. The purpose is to assess how variations in government debt, expenditures, revenue, and subsidies influenced household financial behaviors in response to economic shocks. Using a Markov Switching VAR model across three regimes: initial impact, peak crisis, and recovery.This analysis captures changes in household consumption, disposable income, and consumption propensities under different fiscal policy measures. The findings reveal that the Slovak Republic exhibited the highest fiscal effectiveness, demonstrating effective government policies that stimulated consumer spending and supported household income during the pandemic. Croatia also showed positive outcomes, particularly in terms of income, although rising government debt posed challenges to overall effectiveness. Conversely, Poland faced significant obstacles, with its fiscal measures leading to lower consumption and income outcomes, indicating limited policy efficacy. Conclusions emphasize the importance of tailored fiscal measures, as their effectiveness varied across countries and economic contexts. Recommendations include reinforcing consumption-supportive policies, particularly during crisis periods, to stabilize income and consumption expectations. This study underscores the significance of targeted fiscal actions in promoting household resilience and economic stability, as exemplified by the successful approach taken by the Slovak Republic.

Suggested Citation

  • Tuhin G M Al Mamun & Ehsanullah & Md Sharif Hassan & Mohd Faizal Yusof & Md Aminul Islam & Naharin Binte Rab, 2025. "Fiscal Policy and Household Savings in Central Europe (Poland, Croatia, and Slovak Republic) -- A Markov Switching VAR with Covid Shock," Papers 2502.14041, arXiv.org, revised Mar 2025.
  • Handle: RePEc:arx:papers:2502.14041
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2502.14041
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Auerbach, Alan J & Gorodnichenko, Yuriy, 2013. "Measuring the Output Responses to Fiscal Policy (vol 4, pg 1, 2012)," Department of Economics, Working Paper Series qt73c8q5wx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," American Economic Review, American Economic Association, vol. 103(3), pages 117-120, May.
    3. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    4. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
    5. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
    6. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, October.
    7. World Bank, 2021. "Global Economic Prospects, June 2021," World Bank Publications - Books, The World Bank Group, number 35647, April.
    8. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
    9. World Bank, 2021. "Global Economic Prospects, January 2021," World Bank Publications - Books, The World Bank Group, number 34710, April.
    10. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    11. Alan J. Auerbach & Yuriy Gorodnichenko, 2013. "Corrigendum: Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 5(3), pages 320-322, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Piotr Krajewski, 2017. "Czy szacując efekty polityki makroekonomicznej należy uwzględniać perspektywę planowania gospodarstw domowych?," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 4, pages 39-61.
    2. Paula Garda & Volker Ziemann, 2014. "Economic Policies and Microeconomic Stability: A Literature Review and Some Empirics," OECD Economics Department Working Papers 1115, OECD Publishing.
    3. Olivier Coibion & Yuriy Gorodnichenko & Mauricio Ulate, 2018. "The Cyclical Sensitivity in Estimates of Potential Output," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(2 (Fall)), pages 343-441.
    4. Jalles, João Tovar & Medas, Paulo, 2024. "The economic aftermath of surges in public and private debt: Initial conditions and channels," Economic Systems, Elsevier, vol. 48(3).
    5. Anthony J. Makin, 2015. "Expansionary Versus Contractionary Government Spending," Contemporary Economic Policy, Western Economic Association International, vol. 33(1), pages 56-65, January.
    6. György Molnár & Gábor Dániel Soós & Balázs Világi, 2017. "Fiscal Policy and the Business Cycle," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 16(4), pages 58-85.
    7. Francesco Saraceno, 2017. "Rethinking fiscal policy : lessons from the european monetary union," SciencePo Working papers Main hal-03457591, HAL.
    8. Francesco Saraceno, 2017. "Rethinking fiscal policy : lessons from the european monetary union," Working Papers hal-03457591, HAL.
    9. Alejandro López-Vera & Andr�s D. Pinchao-Rosero & Norberto Rodr�guez-Ni�o, 2018. "Non-Linear Fiscal Multipliers for Public Expenditure and Tax Revenue in Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 36(85), pages 48-64.
    10. Bernd Hayo & Matthias Uhl, 2017. "Taxation and consumption: evidence from a representative survey of the German population," Applied Economics, Taylor & Francis Journals, vol. 49(53), pages 5477-5490, November.
    11. Adrien Auclert & Matthew Rognlie & Ludwig Straub, 2024. "The Intertemporal Keynesian Cross," Journal of Political Economy, University of Chicago Press, vol. 132(12), pages 4068-4121.
    12. Meghir, Costas & Pistaferri, Luigi, 2011. "Earnings, Consumption and Life Cycle Choices," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 9, pages 773-854, Elsevier.
    13. Kento Tango & Yoshiyuki Nakazono, 2023. "Subjective Monetary Policy Shocks," TUPD Discussion Papers 34, Graduate School of Economics and Management, Tohoku University.
    14. Cappellari, Lorenzo & Jenkins, Stephen P., 2014. "Earnings and labour market volatility in Britain, with a transatlantic comparison," Labour Economics, Elsevier, vol. 30(C), pages 201-211.
    15. Polito, Vito & Wickens, Michael, 2014. "How the Euro Crisis Evolved and how to Avoid Another: EMU, Fiscal Policy and Credit Ratings," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 364-374.
    16. repec:hal:spmain:info:hdl:2441/eul7jlnf19iq8tdp0vlfv63n5 is not listed on IDEAS
    17. Daragh Clancy & Lorenzo Ricci, 2022. "Economic sentiments and international risk sharing," International Economics, CEPII research center, issue 169, pages 208-229.
    18. James Cloyne & Nicholas Dimsdale & Natacha Postel-Vinay, 2024. "Taxes and Growth: New Narrative Evidence from Interwar Britain," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(4), pages 2168-2200.
    19. Fuchs-Schündeln, N. & Hassan, T.A., 2016. "Natural Experiments in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 923-1012, Elsevier.
    20. Uros Djuric & Michael Neugart, 2021. "Helicopter money: survey evidence on expectation formation and consumption behaviour," Oxford Economic Papers, Oxford University Press, vol. 73(1), pages 273-294.
    21. Lago Peñas, Santiago & Vaquero-Garcia, Alberto & Sanchez-Fernandez, Patricio & Lopez-Bermudez, Beatriz, 2019. "Does fiscal consolidation hurt economic growth? Empirical evidence from Spanish regions," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-19.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2502.14041. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.